Pay special attention to underlined sections, as these highlight the most frequently encountered issues. Bold is used for navigation, modules, and screens. Italics are used for fields, tables, and errors. Fixed width indicates values for fields or code/text that should be entered. Tags are shown in parentheses (#) after field names.

Example reference data screens, trade screens, and reports are attached:

• Option on EQ Example.xlsx
• Option on INX Example.xlsx

Entity Setup

Before any trades can be booked, the target entity must be set up appropriately.

Reference Data

Storage & Configuration

Eagle has modeled Option security master files (SMFs) as single rows in Data Management.

Market Data

Because they are exchange-traded, Option prices and underlying security prices are readily available from a number of vendors.

Security Data

Options can be set up and maintained in Issue Viewer, Security Reference Manager (SRM), or Reference Data Center (RDC). The list below contains all fields required to configure an Option SMF.

• Issue Name (961)
• Primary Asset ID (14) & Type (1432)
• Processing Security Type (3931): OPOPEQ for an EQ Option, OPOPDB for a FI Option, or OPOPIX for an INX Option
• Contract Size (19): # of shares (EQ/INX Option) or par value (FI Option) that each contract is entitled to
• Issue Country (1418)
• Asset Currency (85)
• Expiration Date (38): date when Eagle Accounting will automatically expire the Option, unless the entity-level Options and Futures Expiration Delay Days field has been populated
• Strike Price (67): price at which the Option can be exercised or assigned
• Option Type (1142)
  • American: contract can be exercised or assigned at any time until expiration, assuming the strike price has been reached
  • European: contract can be exercised or assigned on expiration date only
  • Bermudan: functions the same way as American in Eagle Accounting; this option exists for reference data purposes only
• Put/Call Flag (1350)
• Underlying Security (1347): select the appropriate underlying security based on the type of option

Trade Processing

Trades are entered using the Book Trade module once the entity and reference data have been configured. Enter the appropriate entity, security identifier, and trade/settle dates and click Submit to query for the security. Right-click it and select Open or Close. The list below contains all fields required to book an Option trade.

Net Option Positions = No

Open > Buy

This creates a long position (long with positive quantity).

• Contracts (40): number of contracts being transacted
• Price Per Contract (45): multiplied by Contracts, Contract Size, and Price Multiplier (18) to calculate premium
• Commission Per Contract (971): multiplied by Contracts to calculate Commission Amount Local (47), which is factored into the Net Amount fields
• Tax Amount (46), SEC Fee (48), Stamp Duty Tax (51), & Other Fee (3752): added to the premium and commission to generate the total net amount
• Broker (88)

Open > Write

This creates a short position (short with positive quantity), using the same fields as above.

Close > Sell

This closes (partially or fully) a previously established long position, using the same fields as above.

Close > Buy to Cover

This closes (partially or fully) a previously established short position, using the same fields as above.

Net Option Positions = Yes

Open > Buy

This creates a long position (long with positive quantity) or closes a previously established short position (long with negative quantity), using the same fields as above.

Close > Sell

This creates a short position (long with negative quantity) or closes a previously established long position (long with positive quantity), using the same fields as above.

Accounting

Once an Option trade is booked, it will be picked up in Eagle’s global workflow. Accounting valuation is calculated when posting unrealized gain/loss and Data Management valuation is calculated in STAR to PACE. These can be scheduled or triggered manually.

• V17 & Above: Accounting Center > Processing and Exceptions > Global Processes

  • Accounting Valuation: Unrealized Gain Loss Entries > Post Daily Fund Unrealized Gain Loss-Position

  • Data Management Valuation: Eagle STAR to Eagle PACE Direct Processing > Transfer Data - Batch

• Prior to V17: Global Process Center

  • Accounting Valuation: Unrealized Gain Loss Entries > Post Daily Fund Unrealized Gain Loss-Position

  • Data Management Valuation: STAR to PACE Direct Processing > Transfer Data - Batch

Valuation

Options are valued using unit prices. The market value formula is:

• Market Value = # of Contracts * Contract Size * Price * Price Multiplier

Stock Split

The most common corporate action that affects EQ Option contracts is a stock split. If there is a 2:1 split on the underlying stock, each Option contract is entitled to twice as many shares at half the original strike. To process a stock split on an EQ Option in Eagle, start by creating a Stock Split Corporate Action Announcement. After querying for the appropriate EQ Option, populate the fields below as described.

• Sweep Date (1197): date when Eagle Accounting’s global corporate action process will pick up the Stock Split
• Ex Date (65): set to ex-date of the underlying equity (date after which a buyer will no longer be entitled to previously declared stock split); also the same as Effective Date
• Treatment of Fraction Shares (3965): European (requires From Shares and To Shares), Post Fraction Shares, Round Down, Round Up, or Round to Nearest Whole Share (requires Rounding Point)
• Corporate Action Status (54): select Released to initiate stock split when invoking the global corporate action process, or select Pending or Incomplete to simply store the stock split announcement
  • Corporate Action Sub Priority (required to mark stock split as Released): order in which to process corporate actions with the same Ex Date (1 is first priority, 2 is second, etc.)
• Split Contract Size (1698, unique to EQ Options): select Yes to maintain same number of contracts while changing Contract Size, or No to change the number of contracts while maintaining Contract Size
  • Both elections will change information in the position object, but not the SMF (STAR to PACE reads Contract Size from the position object for Market Value calculations)
    • The same applies to Strike Price: it will be adjusted on all open lots based on Split Ratio (1001), but not on the SMF
    • You should have a security update process in place that also adjusts Contract Size and Strike Price on the SMF on Ex Date to ensure new trades are processed with the correct information
  • Market value is the same post split regardless of which election is chosen; take a 2:1 split, where the holder has 100 contracts and contract size is 100:
    • Split Contract Size = Yes: after the split, Market Value = 100 contracts * 200 contract size * price = 20,000 * price
    • Split Contract Size = No: after the split, Market Value = 200 contracts * 100 contract size * price = 20,000 * price
• Split Ratio (required to mark as Released): number of shares the holder is entitled to for each share they own; for a 2:1 stock split, enter 2
• Corporate Action Type (1728): Stock Split or Reverse Split. List can be maintained via Code Values

Use the Stock Dividends/Stock Splits global process to process the Stock Split, with a date range that includes Sweep Date entered above.

Exercise/Assign

Exercises and assignments are processed using Book Trade > Other > Exercise. By definition purchased Options are exercised and written Options are assigned, but they use the same process in Eagle Accounting.

Settlement

Options can be exercised or assigned using cash or physical settlement. Cash settlement has no effect on the underlying asset; it is simply an exchange of money based on the exercise price. Physical settlement (not available for INX Options) results in either opening or closing a position in the underlying asset.

Cash Settlement

Note: exercise price is the Price Per Contract entered on the Exercise screen. Example: a call Option has Strike Price = $20 and underlying price on exercise date = $30. Set exercise price = $10 to generate a cash receipt/disbursement of $10 per contract.

Purchased Call or Put

• Cash Receipt = # of contracts exercised * contract size * exercise price * price multiplier
• Gain (Loss) = # of contracts exercised * contract size * (exercise price - open price) * price multiplier

Written Call or Put

• Cash Disbursement = # of contracts exercised * contract size * exercise price * price multiplier
• Gain (Loss) = # of contracts exercised * contract size * (open price - exercise price) * price multiplier

Physical Settlement

Purchased Call: establish a long position (Buy of the underlying asset).

• Cost = # of contracts exercised * contract size * (strike price + price per contract) * price multiplier
• Cash Disbursement = # of contracts exercised * contract size * strike price * price multiplier

Purchased Put: decrease a long position (Sell of the underlying asset, requires a long holding at the time of exercise).

• Reduced cost of long position = # of contracts exercised * contract size * open price * price multiplier
• Cash Receipt = # of contracts exercised * contract size * strike price * price multiplier
• Gain (Loss) = # of contracts exercised * contract size * (strike price - open price - price per contract) * price multiplier

Written Call: decrease a long position (Sell of the underlying asset, requires a long holding at the time of exercise).

• Reduced cost of long position = # of contracts exercised * contract size * open price * price multiplier
• Cash Receipt = # of contracts exercised * contract size * strike price * price multiplier
• Gain (Loss) = # of contracts exercised * contract size * (strike price - open price + price per contract) * price multiplier

Written Put: establish a long position (Buy of the underlying asset).

• Cost = # of contracts exercised * contract size * (strike price - price per contract) * price multiplier
• Cash Disbursement = # of contracts exercised * contract size * strike price * price multiplier

Physical Short Settlement

Note: physical short settlement is not valid for written puts when the entity-level Net Options Positions = Yes.

Purchased Call: decrease a short position (BuytoCover of the underlying asset, requires a short holding at the time of exercise).

• Reduced cost of short position = # of contracts exercised * contract size * open price * price multiplier
• Cash Disbursement = # of contracts exercised * contract size * strike price * price multiplier
• Gain (Loss) = # of contracts exercised * contract size * (open price - strike price - price per contract) * price multiplier

Purchased Put: establish a short position (ShortSell of the underlying asset).

• Cost = # of contracts exercised * contract size * (strike price - price per contract) * price multiplier
• Cash Receipt = # of contracts exercised * contract size * strike price * price multiplier

Written Call: establish a short position (ShortSell of the underlying asset).

• Cost = # of contracts exercised * contract size * (strike price + price per contract) * price multiplier
• Cash Receipt = # of contracts exercised * contract size * strike price * price multiplier

Written Put: decrease a short position (BuytoCover of the underlying asset, requires a short holding at the time of exercise).

• Reduced cost of short position = # of contracts exercised * contract size * open price * price multiplier
• Cash Disbursement = # of contracts exercised * contract size * strike price * price multiplier
• Gain (Loss) = # of contracts exercised * contract size * (open price - strike price + price per contract) * price multiplier

Exercise/Assign Events

Eagle Accounting will automatically move the Option’s cost to the underlying security when the contract is exercised, via these events:

• Close the Option contract
• Open or close the underlying security position (long or short)
• Allocate Option cost or premium to the underlying security position

Canceling Exercise/Assign Events

Canceling an exercise or assign event requires the use of the Batch Cancel Trades panel. Query for the appropriate date range, entity, and security, then set Choose Trade to Cancel (962) = the target exercise/assign event. This will roll back the exercise/assign event by removing the action on underlying shares and restoring the original position. Option trades can be canceled using the regular Cancel Trade panel or rebooked using the Cancel & Rebook Trades module.

Expire

If the contract is not closed prior, Eagle Accounting will expire the Option on expiration date plus the number of days defined in the entity’s Options and Futures Expiration Delay Days election. Each contract's cost/proceeds are posted to realized gain/loss.

Reporting

STAR to PACE (S2P)

Almost all reports in Eagle leverage data from Data Management, which is populated by the S2P process. This will be scheduled as part of the daily workflow, but can also be triggered manually as described in the Accounting section.

The S2P process creates a single row for each Option in the POSITION, POSITION_DETAIL, TRADE, and CASH_ACTIVITY tables. The MARKET_VALUE_INCOME column captures the total market value. Cash activity is appropriately signed based on whether the Option is bought or written.

Accounting Reports

Eagle has a core set of accounting reports that can be used to review Option information. These are designed to support the daily operational workflow for business users, allowing Grid Reports to be easily exported to Excel and customized to provide additional details as needed. Advanced Reports are intended to be client-facing and do not provide the same level of customization.

Insurance Reporting

To categorize derivatives for insurance reporting, such as the Schedule DB, Derivative Elections (56) must be set to Hedging Effective, Hedging Other, Income Generation, Replications, or Other on all trades. Leaving the default of Trade will prevent the transaction from appearing on insurance reports.

Data Management Reporting

General Reporting (Eagle OLAP)

OLAP reports provide the maximum level of customization, allowing any column in Data Management to be pulled into a report. These go beyond the Eagle Accounting Grid Reports because they are not limited by core queries, can support multiple sources and various types of calculations, and provide drill-down functionality based on user-defined groupings.

Performance

The performance toolkit calculates market value-based performance for Options using data supplied by the S2P process. However, this can be misleading because traditional market values do not capture an Option’s true exposure. Exposure-based analyses, which can be implemented using Eagle Enrichment, calculate more accurate returns. The documentation and .egl files linked below as attachments are available for beta testing. Additional details are available in Exposure Reporting and the Eagle Enrichment User Guide 2015.

• Options on EQ-FI-INX Enrichment Rule EGAC_101.egl
• Options on EQ-FI-INX Enrichment Inventory EGAC_101.xlsx
• Options on EQ-FI-INX Enrichment Examples EGAC_101.xlsx

Automation

Sample messages for the standard interfaces are listed below.